Do You Understand The Value Chain Of The Transaction? I’m Not Going To Stop Until You Pay Attention!

It’s just standard practice and we all accept it as it is. If you ask just about anyone involved in commercial real estate this simple question, “how long does it take to complete a commercial real estate transaction?” The answer you will most likely get is “there are always some variables but if we are taking a basic sale it will usually involve a 30-day due diligence, 45-60 day financing contingency, and a closing 15 days after all contingencies have expired. Total time 75-90 days on average”.

And you are nodding your head yes.

Bare with me here but let me give you some context. Most of you reading this probably have this down to a science but let’s look at the due diligence part of the transaction. Some of you may have a checklist you use but I sat down and came up with the following off the top of my head and yes I had to go back and look at some of my old deals because who in the hell can remember all of this:

  1. The most recent title policy or title commitment on the property in the possession or control of seller together with all related documents.
  2. The most recent ALTA survey and topographic study for the property and a copy of the construction blueprints, engineering plans and as-built drawings in the possession or control of the seller.
  3. A legal description of the property.
  4. Zoning Compliance Certificate for the property and all zoning approvals (including variances and any pending applications).
  5. Declaration of covenants, conditions, restrictions, reservations, and easements for the property.
  6. Seller’s third-party engineering, environmental reports (including but not limited to Phase I and Phase II reports, NFR letters, mold abatement reports and underground storage tank testing and closure reports), appraisals, soil tests, boring reports, foundation reports (logs of pilings), termite or radon studies.
  7. A true, correct and complete copy of each written lease and each guaranty (together with any amendments), and a certification that there are no oral leases or oral understandings if any.
  8. An accounting of all rent and other income, common area maintenance, security deposits and real estate tax contributions paid by any tenant at the property, including, without limitation, a certified rent roll, showing current rent, previous rent if applicable, delinquencies, security deposits, years of occupancy, lease commencement date and lease termination date.
  9. All security deposits and any other amounts to which any tenant, vendor, or any other party may be entitled.
  10. A copy of the last three years’ real estate tax bills, including special assessments or incentives, copies of all tax protests, related correspondence and protest results for the property and copies of the prior two years’ utility bills for the property.
  11. A true, correct and complete copy of each written service contract and a true, correct and complete written summary of each oral service contract, together with copies of any and all other contracts and agreements relating to the operation, maintenance and repair of the property.
  12. An accounting of all income and expenses related to the property, including collection reports and tax statements for the last three years.
  13. A list of all personal property, if any, owned by the seller, located at the property, and used or useful in connection with its operation and maintenance.
  14. A list of all permits, partial certificates of occupancy, certificates of occupancy, warranties, government notices, special assessments, code violations and unexpired guaranties and copies of same in seller’s possession or control.

Again for context, this is generally what needs to be done to satisfy the due diligence period.

I have a question. Why?

Why this and why does it take 30 days?

Obviously that why it’s called due diligence.

But 30 days? 30 whole days of human existence?

Wow.

How about 1 day?

How about its already in………a digital file that is updated instantly anything changes?

How about that? Do you like that? I know you do. How much would you pay for that service?

What if it was just one part of the transaction that you did not have to process.

How much is that worth …….to….commercial real estate?

How about the humans involved in the 30 days of what?

I understand the need for the verification of all the points above and to be fair there could be a few more that should be included but that’s NOT the point.

The point is this. All of that information is just DATA. And all the due diligence process is, is the verification of that DATA.

And it takes 30 days!

Really, again I ask why!

How about the financing period of the deal? Standard practice today says it should take 45-60 days.

It has to take that long, right? There is so much more involved. That process does what?

Yes, you know the answer, verify certain sets of data.

So that process takes 40-65 days.

That’s a long time.

The world we live in today is moving a what I would call quantum speed.

It doesn’t ask for speed it demands it.

What if you did a stock trade and it took 60 days to process? What kind of market is that?

It’s the one we have in commercial real estate now.

But…but…but…no not anymore.

Not because “we are different.”

That argument is GONE!

We need to eliminate the ridiculous and archaic practices.

We need to demand that they change forever.

How simple is it to realize what happens when just one part of a commercial real estate transaction makes a quantum leap in time, real-time, from 30 days to milliseconds.

Do You Understand The Value Chain Of The Transaction?

 

+1 I’m Not Going To Stop Until You Pay Attention!

 

 

 

 

 

 

 

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